India's price index confounds consumers

By Saurav Jha
Column: The Estranged Analyst

Published: September 22, 2009

Kolkata, India — Food prices in India have risen by 20 to 40 percent in the past few months, yet newspapers are reporting that the economy is witnessing negative to low inflation. Ironically, what is reported as “headline inflation” does not really measure the impact of prices on consumers. And with forthcoming changes in the way the indicator is determined, it will do so even less.

India is revising the way it determines its key inflation indicator, the wholesale price index, from October. Since it is practically impossible to determine the average change in prices of all the goods and services traded in an economy, a sample set or basket of goods and services is used to get an indicative figure. In India, a comprehensive review of the basket of commodities whose prices determine the index is underway.

For the first time, “services” are likely to be included in the index, reflecting the importance of their contribution to India’s gross domestic product. The existing WPI is calculated by comparing current prices with those in 1993-1994; this will be replaced by a new base year, 2004-05.

While the inclusion of services will reflect a larger share of education and health in the Indian consumption basket, it could lead to a decline in the weight assigned to food items, which in turn would lead to the WPI further underestimating food price inflation.

The wholesale price index, as the name suggests, measures wholesale and not retail prices faced by consumers. While presently it takes into account the prices of 435 commodities, over the years the percentage of food items used to determine this index has been declining, including the weight assigned to them. In October, the weight accorded to primary articles will see a significant decrease from the current 22.02 percent to around 10 percent.

The new series will also see a significant increase in the weight for manufactured products, to around 80 percent from the current 63.75 percent.

It is therefore no wonder that food prices and the WPI have been out of step. Nevertheless, the Indian government continues to prefer the WPI for policymaking to indexes that give far higher weight to consumption and are calculated for retail prices. These are the various consumer price indexes, which are essentially cost-of-living indexes. There are four of these - CPI industrial workers; CPI urban non-manual employees; CPI agricultural laborers; and CPI rural labor. Unsurprisingly, each of these indexes has shown consistent double-digit growth in the recent past, even as the WPI showed negative movement.

Since these indexes capture retail consumer woes more adequately, from time to time there has been a demand to use CPI measures as indicators for policy rather than the WPI. Proponents of this view have pointed to the widespread use of the CPI across the world as the key inflation index and have noted India to be one of the few exceptions.

Indeed, even India’s National Statistical Commission recommended in 2001 that all four existing cost-of-living indexes be aggregated into a single CPI as a policy indicator. However, this proved to be much easier said than done. Consumer price data proved difficult to compile and, minus an overhaul of India’s statistical bureaucracy, there is significant time lag between final compilation and data gathering.

The WPI is reported weekly with a time lag of a fortnight, while CPI figures are compiled on a monthly basis with a lag period of a few months or more. Moreover, given the dualistic nature of the Indian economy, the four CPI indicators are not as similar as they seem and consolidating them may prove difficult.

While all these factors can be overcome, the truth is probably that the government does not want to abolish the WPI. Indian policymakers continue to be hooked on the idea of “core inflation,” which basically refers to the inflation of manufactured products. It is this measure that is used to determine monetary policy in India.

In fact, the inclusion of services in the WPI basket will make sense from the production side of things, since it will help assess the impact of inflation on the “production of services.” As recently announced by Finance Minister Pranab Mukherjee, India plans to draw up a producers’ price index by modifying the present WPI, rather than moving toward a comprehensive consumer price-based measure.

The point remains, however, that India cannot have a catchall index as the WPI was once thought to be. It is clear that Indian policymakers believe that food price inflation is caused by supply-side factors and does not address monetary policy in any significant way.

It is easy to criticize the seeming conservatism of the Indian establishment in relying on the WPI, but it must be noted that India continues to be an economy in transition, with wide disparities. As and when the economy develops and the populace becomes richer, it is expected that services will hold an even more significant place in both the production and consumption baskets.

Also, the number of middlemen between wholesale and retail markets will be progressively reduced, leading to less divergence in price movements at the wholesale and retail levels.

Maybe then India will adopt a consumer-based price index as its primary informant for policymaking. However, until that day arrives, consumers in India can safely avoid reading the section of the newspaper that informs them of the inflation rate.

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(Saurav Jha works as an independent consultant in the energy sector in India. He is consulting editor of India Power magazine and author of a forthcoming book on nuclear power. He can be contacted at sjha1618@gmail.com. ©Copyright Saurav Jha.)

This article first appeared here

UAE aircraft stirs turbulence in China-India relations

By Saurav Jha

Column: The Estranged Analyst

Published: September 15, 2009

Kolkata, India — The five-day detention by Indian authorities of a United Arab Emirates Air Force plane, impounded at Kolkata Airport on Sept.6, has created another ripple in Sino-Indian relations and embarrassed the UAE into the bargain. The aircraft, bound for China, was found to be carrying weapons that had not been declared to customs officials.

The UAEAF C-130 Hercules had made a routine refueling stop at Kolkata Airport en route to the city of Xianyang in central China. When Indian customs officers conducted an equally routine inspection of the plane’s cargo hold, they found weapons in crates marked “combat missiles.” Worse, the crew had failed to declare the cargo to authorities in the mandatory customs declaration form.

The crew was detained for interrogation by Air Intelligence in India, where one of the crewmembers reportedly confessed to failing to notify authorities of the presence of weapons on board.

The aircraft was released on Sept.10 after the UAE government said that the act of omission happened due to a “technical error,” and apologized.

Initial reports had suggested that the plane’s undeclared cargo, marked as combat missiles, contained U.S.-origin weapons. Other reports later hinted that harpoon anti-ship missiles procured by the UAE and Egypt were being moved to China secretly.

This speculation of course sits well with the long-held belief that certain Middle Eastern countries act as procurement fronts for China with respect to Western equipment, as China has faced an arms embargo by Western countries since the 1989 Tiananmen Square massacre.

The arms embargo forced China to rely increasingly on Russian imports and their subsequent reverse engineering to keep its arsenal contemporary. However, China’s interest in Western advances in weaponry did not diminish, and clandestine methods for sourcing such arms were resorted to.

Indeed, prima facie, the quantum of arms purchased by states such as UAE, Egypt and Pakistan seems disproportionate to their requirements and financial capability. This leads one to suspect the presence of an offshore entity for their grand arms purchases from Western suppliers. The needle of suspicion points rather strongly to China, given the special relationship it shares with each of these states.

However, the Chinese themselves seem to have declared that the arms being ferried on the UAE plane were of Chinese origin and were exhibits at a recent arms show in Abu Dhabi. Furthermore, a Chinese analyst, piqued at the prospect of Indian authorities examining their military equipment, declared it an act of wanton espionage.

China’s Global Times quotes Dai Xu, described as a Chinese military expert, saying, “The actions by Indian authorities violated diplomatic rights as the cargo on board belongs to China. Any inspection on board, which may have violated China’s property rights and constituted spying on its military secrets, should be approved by both the UAE and China.”

It must be noted that of late several articles taunting India on its relative position vis-à-vis China have appeared in the Chinese media. There has even been “an Internet paper” – really a diatribe – written by another elusive Chinese analyst calling for the balkanization of India.

It seems Beijing has taken Track II diplomacy to a whole new level by carefully choosing its words at the official level while simultaneously allowing state-run mouthpieces to let it rip on India. However, Indian media have raised grave concerns and the Indian public has not taken very kindly to these musings by unofficial Chinese commentators.

The UAE could certainly have done without the incident, especially at a time when the crown prince of Abu Dhabi, Mohammed bin Zayed, is doing the rounds of Washington, lobbying for legislative approval of a 123 agreement on civilian nuclear cooperation with the United States. Signed at the end of former U.S. President George W. Bush’s administration, the nuclear agreement is slated to pass around Oct. 17, unless there is Congressional action blocking it.

Several U.S. lawmakers have expressed concerns over the UAE’s lack of export controls. Lawmakers in the United States are more concerned about weapons proliferation to Iran. There have been instances in the past where China and Iran have collaborated in clandestinely obtaining banned systems, like the secret procurement of AS-15 Kent cruise missiles from the Ukraine. This has subsequently been reverse engineered by the Chinese in the form of the DH-10 land attack cruise missile.

China’s dealings with India seem to be a mix of diplomatic hectoring and force posturing along the disputed border. The Indian establishment so far seems to have maintained its equanimity in diplomatic terms because China policy in India continues to be guided essentially by a politico-bureaucratic set up.

The Chinese government would do well to note that any further escalation, at least in the perception of the Indian establishment, may lead to the Indian military being given a far greater say in Sino-Indian relations. That may not look good on the curriculum vitae of a “peacefully rising” power.

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(Saurav Jha works as an independent consultant in the energy sector in India. He is consulting editor of India Power magazine and author of a forthcoming book on nuclear power. He can be contacted at sjha1618@gmail.com. ©Copyright Saurav Jha.)

This article first appeared here

There is a growing tendency in some quarters to posit renewables particularly wind power, as an alternative to Nuclear power. These suggestions, howsoever well intentioned, are utterly misplaced. Most Renewable means of generation barring a few are essentially intermittent power sources, and are thoroughly unsuitable for base load supply, as it were. Now, as we all know high capacity factors and availability is what makes nuclear power an attractive option for forming the backbone of any grid. Intermittent power sources at best can be peaking schemes and are more suited to off-grid profiles. Comparing wind power to nuclear sources of generation is akin to comparing apples to oranges.


Wind power in particular has huge grid penetration issues and is utterly unsuitable for base load supply. Various studies have shown that at the very best , wind power can be allowed a 20 per cent grid penetration ratio. Many commentators, especially in India, consider wind power an "enemy of the grid". This is on account of the fact, that wind power generation often takes place when you don't need it. For instance wind power generation is relatively higher in the monsoon period; however that is also a time when many hydro power stations come into their own. Now these stations are generally cheaper than wind power and merit order dispatch requires that these stations contribute to the grid first. Thus a need to store the power from wind turbines arises and storage of power is neither cheap nor large scale.

Wind turbine capacity factors even with the latest turbines that generate power while revolving in either direction are no higher than 30 per cent. Hybridisation with other renewable means such as solar PV can mitigate non-availability somewhat ,but not by much. In any case there is no escaping the standard power quality issues that would arise with an intermittent source such as wind. This of course means that wind turbines have disproportionately high reactive power needs and this increases the cost of installation due to the need to have various power quality devices.

Though costs by swept rotor area, especially due to larger capture units have declined, they are still quite high. As they say, most of the low hanging fruit in terms of windy sites has been taken. In any case land is becoming increasingly scarce and large wind farms are becoming increasingly difficult to locate. This is actually one of the main drivers behind the rise of off shore wind power. However, off shore wind power is no panacea either and there are huge power evacuation issues related to the same.Indeed, in the years to come, the prime resource for generation of wind power will not be wind but windy sites.

Wind power is not the solution to our huge grid connected requirements. It is an accessory and when used in consort with other technologies may serve as an excellent standalone option. however to say that it can serve as a viable grid connected alternative to nuclear power is stretching the point a bit too much.

Floating Nuclear Plants, anyone?


There is this somewhat "interesting" article in the Deccan herald , which talks of stuff like "second hand reactors" and the new floating nuclear plants (FNPP) that the Russians are building. I must admit, that at first glance the article seemed a little laughable , however on second thoughts there might be an issue or two there, somewhere.

Now the point is, these new mobile Russian power plants are essentially ships with a reactor integrated into the assembly. The idea itself is nothing new, and the U.S military actually operated a 'nuclear barge', the MH-1A Sturgis in the sixties. However, the article says that such floating nuclear powers may be supplied to India. This immediately raises the question as to how this could be facilitated outside the auspices of the NSG.

Well, to stretch a point , India is being transferred "floating nuclear plants" in the form of the Shchuka-B (NATO: Akula) class attack submarines, albeit on a lease basis. well, can it be that a similar arrangement is arrived at for a "real" FNPP , given that these are essentially ships with a nuclear reactor.?


Imagine a scenario wherein the reactor remains sealed most of the time and under supervision, while "replenishment " is done offshore and closely controlled by the supplier, in this case the Russians. Moreover, NSG guidelines are not really explicit on the issue of ship to shore power . this of course raises an interesting possibility.

Say, for arguments sake , such a reactor is transferred under a "military power supply program" . May be that's doable , but the much more interesting question relates to the supply of fuel. where would the enriched fuel required for these reactors be sourced from?

The larger questions pertaining to the evacuation of power from these plants and safety concerns are another area altogether. maybe some other time...

Uranium from Seawater

Amidst all this talk of 'importing" Uranium , we are forgetting that the largest potential source of Uranium is much nearer to our shores than we generally think. In fact, it is right next to our shoreline. Yes, i am talking about the seas that grace our coasts. Though the concentration of Uranium in sea water is only about 3 mg U/m, this actually translates into a huge uranium reserve (about 4 billion tons). Even if only half of this resource could ultimately be recovered, it could support for 6,500 years 3,000 GW of nuclear capacity (75 percent capacity factor) based on next-generation reactors operated simply in a once-through fuel cycle. Once we take reprocessing into account, even a minuscule fraction of this figure can supply the world's reactors many times over.


Unfortunately, as with most good things, recovery of uranium from seawater has issues as well. For instance it is by no means cheap. The recovery cost has been estimated to be 5-10 times of that from mining uranium on land. More than 80 per cent of the total cost is occupied by the cost for marine equipment for mooring adsorbents in seawater. It is believed that this cost can be reduced to half if a 75 per cent reduction in the weight of equipment is achieved. But then, this isn't that easy, is it? Improvement of adsorbent ability is also a problem for future research since the cost directly depends on the adsorbent performance.

Needless to say, changes in costs or prices may alter economic viability status , appreciably. Research on a process being developed in Japan suggests that it might be feasible to recover uranium from seawater at a cost of $120 per lb of U₃O₈. Now this is about twice the current price, and seawater might just become a potential source of vast amounts of uranium, sooner than we think.


In any case DAE has prioritized research into this area. Indeed, DAE's bi-monthly digest Nuclear India says that " BARC made significant progress in its attempts to bio-recover uranium from seawater ..." . who knows maybe a pleasant surprise is in the offing.

The Indo-U.S nuclear deal does not seem to be going anywhere. Stymied by opposition from the left, the Government seems set to miss its June date with the IAEA to negotiate a set of India-specific safeguards for the so called civilian list. Indeed, efforts are now underway to tap non-Nuclear Supplier Group (non-NSG) countries for natural uranium. Meanwhile, the U.S continues to push for the civilian nuclear deal. Recent comments made by the U.S ambassador suggest that Washington is still quite keen to wrap the Indo-U.S nuclear accord. Of course key officials on the U.S side continue to prod India by citing congressional procedural time frames and the importance of going to the IAEA this June. However, as mentioned above that does not seem to be happening, primarily on account of opposition from the left.

So where does this leave the prospects for nuclear power generation in India? The IAEA’s “red book,” classifies India’s natural uranium holdings as consisting of 54,636 tons of “reasonably assured resources” (RAR); 25,245 tons in estimated additional resources (EAR-Category I [in situ resources]); 15,488 tons in undiscovered conventional resources (EAR-Category II); and, finally, 17,000 tons in speculative resources (SR), for a grand total of 112,369 tons of uranium reserves without any assigned cost ranges. If our attention is restricted to those reserves that are assumed to be recoverable with a high degree of confidence, essentially the RAR and EAR-I categories, then, India’s stock of natural uranium would total 79,881 tons, close to the figure routinely cited in DAE publications. Other international sources, such as the World Energy Council, the World Information Service on Energy (WISE) Uranium Project, and the IAEA’s own surveys of India’s nuclear industry generally agree with this estimate.

The figure mentioned above is sufficient to fuel a fleet of Pressurized Heavy Water Reactors (PHWRs) with a total capacity of 10,000 MW. However, to look beyond this figure, India needs either international co-operation or the successful completion of India’s three stage programme that envisions the large scale utilization of the country’s significant thorium resources. Unfortunately, the latter continues to be far into the future whereas India’s power requirements are clear and present.

Indian nuclear managers are fully cognizant of the fact, that as their new indigenously built PHWRs come on line, the demand for fuel will only increase, further widening the deficit caused by the constraints in milling capacity (and, to the degree relevant, mining capacity as well).

There are reports that the government feels that it is no longer longer prudent to wait for the deal and the subsequent NSG approval which is concomitant on the former. It has been reported that the government has moved ahead on building bridges with key non-NSG Uranium suppliers including Namibia, Niger and Uzbekistan. Both Namibia and Niger have huge reserves of uranium. In fact, Namibia has around 10 per cent of the world’s uranium reserves and these could be easily tapped by India to fuel its nuclear power programme. According to the reports alluded to above , the Department of Atomic Energy (DAE) will soon discuss cooperation between Indian and Namibian utilities for uranium mining and its shipment back to the country. Indeed an MoU which is being finalised between India and Namibia for the mining sector could provide the basic framework for cooperation in uranium as well. As far as Niger is concerned, an Indian company, Taurian Resources was awarded rights for uranium exploration in a few blocks in that country, last year itself. Co-operation between DAE and this company seems likely.

In the midst of all this, it must be kept in mind that the recent fall in PLFs experienced by NPCIL’s existing PHWRs has nothing to do with the level of uranium resources in the country. The current situation is on account of a mismatch between fuel demand and supply, and is not meant to be alleviated through the import of Uranium. It must be understood by readers that fuel for reactors undergoes several stages of processing and fabrication before it is ready to be loaded .Thus even though a new milling unit was commissioned at Turamdih last year , it will take sometime before the benefits of the same kick in. This is on account of the fact that the ore processed from Turamdih will have to go through various stages of fabrication at the Nuclear fuel complex at Hyderabad before it is ready for use and it will be sometime before this new mine and processing unit is fully integrated into the fuel loop, as it were. In any case NPCIL feels that the situation will be remedied in the next 6-8 months.

Uranium imports whether under the auspices of the NSG or not, are meant for future capacity, situated at coastal locations. When the deal seemed likely, these coastal sites were actually identified for locating Pressurized Water reactors (PWRs), each having a minimum capacity of 1000 MWe. To put this in perspective India’s new generation indigenous PHWRs will have a capacity rating of only 700 MWe. Thus the PWR route was being seen as a way to augment base-load capacity quickly and in relatively less space than equivalent coal-fired capacity. A single coastal site could host up to eight PWRs. However, PWRs use low enriched uranium and therefore merely importing natural uranium would not suffice. Indeed, the deal was important because it would have allowed India to source “enriched uranium” from overseas. Now, the fact is, India has no enrichment facility on the civilian list. So either policy makers will have to take a decision to set up new enrichment facilities or these sites will have to be down-rated to serve as hosts for indigenous PHWRs. Clearly some tough choices lay ahead for the Indian nuclear planner.